Stedman v. Hoogendoorn, Talbot, Davids, Godfrey & Milligan, P.C.

Decision Date08 September 1995
Docket NumberNo. 94-1587,94-1587
Citation61 F.3d 906
PartiesNOTICE: Seventh Circuit Rule 53(b)(2) states unpublished orders shall not be cited or used as precedent except to support a claim of res judicata, collateral estoppel or law of the case in any federal court within the circuit. W. David STEDMAN, Plaintiff-Appellant, v. HOOGENDOORN, TALBOT, DAVIDS, GODFREY & MILLIGAN, P.C., Illinois partnership, and Edward D. Willey, d/b/a Edward D. Willey Investigations, Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Before GOODWIN, * COFFEY and ROVNER, Circuit Judges.

ORDER

W. David Stedman appeals from the district court's order in this diversity action granting summary judgment in favor of the defendants on his claims for breach of contract, negligent misrepresentation, and legal malpractice. See Stedman v. Hoogendoorn, Talbot, Davids, Godfrey & Milligan, 843 F. Supp. 1512 (N.D. Ill. 1994). We vacate the judgment and remand for further proceedings.

I.

On March 26, 1990, Stedman retained attorney Edward Tiesenga of the Chicago law firm of Hoogendoorn, Talbot, Davids, Godfrey & Milligan, P.C. for the purpose of performing a background check on Michael W. Blodgett, a dealer in rare coins, and Blodgett's company, T.G. Morgan Inc. ("Morgan"). Stedman had previously made coin purchases through Blodgett totalling $4.6 million in late 1989 and early 1990, and he planned to make further substantial purchases. Before he did so, however, he wished to learn more about Blodgett and Morgan. After doing some investigation on his own, Stedman turned to Tiesenga, who had performed work for him in the past.

Stedman and Tiesenga have offered accounts of the law firm's assignment that differ in material respects. Tiesenga recalled clearly that Stedman imposed a 72-hour time limit on the investigation, explaining that he was required to make his investment decision within this amount of time. Tiesenga Dep. 18-19. Stedman could not specifically recall imposing this time limit, but conceded that it was "quite possible" that he did impose such a limit; it was consistent with his management style, and he had done so hundreds if not thousands of times when making assignments. Stedman Dep. 21-22; see also id. at 97-98. Because Stedman has not denied Tiesenga's representation that a time limit was imposed, we shall, like the district court, assume that Tiesenga and his firm were given the 72-hour limit. See 843 F. Supp. at 1515; cf. Posey v. Skyline Corp., 702 F.2d 102, 105-06 (7th Cir.) (in face of defendant's unequivocal assertion that notices were posted, plaintiff's statement that he did not recall seeing notices insufficient to establish a material dispute of fact as to whether notices were, in fact, posted), cert. denied, 464 U.S. 960, 104 S. Ct. 392 (1983).

In other respects, however, the two men's accounts differ to a degree that cannot be resolved on summary judgment. In particular, Tiesenga insists he advised Stedman that his firm would have to hire a private investigator to conduct the investigation. Tiesenga Dep. 19, 29. Indeed, Tiesenga recalls discussing the anticipated expense of doing so and receiving Stedman's permission to spend up to the $500 Tiesenga estimated it would cost. Id. at 19. Stedman denies giving Tiesenga permission to hire an investigator (Stedman Dep. 85); he simply assumed the firm itself would conduct the investigation, although he conceded the firm might choose individuals to assist in the process (id. at 19, 60).

Tiesenga contacted Joseph Mahr, a local investigator with whom his firm had done business in the past. Mahr (who did not have the time to conduct the investigation) referred Tiesenga to Edward D. Willey, an investigator located in northern Wisconsin who accepted the engagement. In the early evening of March 26, Tiesenga faxed Willey a letter confirming the nature of the assignment:

Our objective is to determine whether Blodgett, his company (Morgan) or any other company or affiliate has any negative history such as a bankruptcy, civil or criminal investigation, litigation, or conviction of any kind.

Willey Dep. Ex. 1. Armed with addresses, bank account numbers and certain other information regarding Blodgett that Stedman had provided to Tiesenga, Willey proceeded with the investigation by telephone and computer. Willey provided interim updates and a final report to Tiesenga within the 72-hour time limit. Tiesenga passed the data along to Stedman by telephone and fax together with some additional information he gathered on his own.

On March 27, 1990, Tiesenga faxed a letter to Stedman containing the following preliminary assessment of Blodgett and his company:

After making preliminary inquiries, and before completing checks with the data bases of the Federal Government, Securities and Exchange Commission, and State of Minnesota, our initial reading on Blodgett is positive. T.G. Morgan Inc. also looks positive. However, this preliminary judgment on Blodgett and his company is based on minimal evidence, entitling it to little weight at this point. We can say, at this point, however, that our opinion of his background is off to a good start.

Since at least the middle 1980's Blodgett has lived in Long Lake, Minnesota in the same house, with a mortgage of nearly $300,000. That kind of a mortgage in that part of the country says this is a substantial home. Prior to living at this residence, Blodgett had two more addresses also in Long Lake (so he hasn't been run out of town yet).

Blodgett is also current on his loan for his top-of-the-line Mercedes and has paid everything else current, including his account at the local Target store, which he opened in 1972.

His employer is listed as Harty Elving Associates, a name we have not yet been able to track down. This seems a little strange for someone who is obviously self-employed. Another potential warning signal is that three other people have checked Blodgett's credit record this year, and several checks were also made last year. This could indicate that Blodgett is looking for a lot of money, and that he started looking recently. We don't know for sure.

As for his company, we don't have much on that yet, beyond satisfactory payment records for somewhat ordinary trade payables. We should have more on the company within a day or two.

In addition to this investigation, depending on the sort of involvement you are contemplating with Blodgett, if you have not already done so, you may want to give some thought to structuring your transaction or investment with him to give you some protection beyond the protection of having a life insurance policy on Blodgett. 2 We can talk more about that later if you wish, and in the meantime we will continue our investigation.

Willey Dep. Ex. 7.

Two days later, on March 29, Tiesenga faxed the following letter to Stedman regarding the coin market generally:

Following our discussion the evening of March 28, 3 I checked with two more people concerning the type of investment you are looking at with Blodgett.

First, I checked with one of my partners here in the firm, who has recently been involved in the sale of $22 million of art work (paintings, sculptures) through the offices of Christies (international showings followed by auction in New York). Based on the relationship this partner has with the appraisers at Christies, he said two things:

1. If you would like to double check the price quotes Blodgett is giving you, we can phone our appraiser and probably get a pretty good idea. Our experience with Christies has been that they have been accurate to within 5% of the market price of a basket of goods, although their appraisals of individual items can vary more widely from actual sale price. They specialize in individual items valued at over $1 million.

2. It sounds very suspicious that someone would be willing to give you monthly statements of value increases in coins. 4 The nature of the market in valuables (very expensive, very small) goes against the ability of anyone to calibrate increases in value so finely, and so often -- especially when he did a grand total of only $32 million last year (at your level of purchase, only you and 31 other people -- hardly much of a "market").

I also called an antique dealer in New Hampshire who is familiar with coins, stamps, and a variety of other valuable items, including dishes, toys, and American memorabilia. He has also worked with the New York auction houses[.] [H]is comments are summarized below:

1. Companies like Kidder and Merrill Lynch have had rare coin funds for at least 7 to 8 years, so this is nothing new.

2. The effect of these funds is to create a "false market" for the coins, inflating their value beyond a reasonable market value.

3. Watch out if you are being told that once the coins are graded, they must be encased in plastic, and that the value cannot be guaranteed if the plastic is broken.

4. The same thing was tried with a new grading system for diamonds a number of years ago, and the perpetrators of that system were found to be putting blue gem stones under plastic, which they claimed could not be opened without destroying the value.

5. Blodgett is known within collector circles, and his name is seen in certain specialty publications and there is not necessarily a positive or negative reputation attaching to Blodgett at this point.

If you would like me to follow up any further with either of these two sources, please let me know. The formal investigators reports are attached, as well as an excerpt from a larger work discussing "Tulipmania!"

Tiesenga Dep. Ex. 2. Willey's final written report, which Tiesenga forwarded to Stedman on March 29, contained the following pertinent information:

1. No search was performed by the Securities and Exchange Commission, as the S.E.C. does not have jurisdiction over rare coin dealers.

2. The Federal Trade Commission had no...

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